Question 1

Which of the following statements is not correct?

Accepted Answer

A)  If GDP is rising faster than debt,the government is,in some sense,living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace the ratio of debt to GDP sometimes rose. 
A)  If GDP is rising faster than debt,the government is,in some sense,living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace the ratio of debt to GDP sometimes rose.

Question 2

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects. 
A)  undervalued or people are relatively optimistic about the corporation's prospects. 
B)  overvalued or people are relatively optimistic about the corporation's prospects. 
C)  overvalued or people are relatively pessimistic about the corporation's prospects. 
D)  undervalued or people are relatively pessimistic about the corporation's prospects.

Question 3

Which of the following is correct?

Accepted Answer

A)  Lenders sell bonds and borrowers buy them. 
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct. 
A)  Lenders sell bonds and borrowers buy them. 
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct.

Question 4

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 4 percent.The price of a share of this stock is

Accepted Answer

A)  $2.08. 
B)  $5.00. 
C)  $8.00 
D)  $50.00. 
A)  $2.08. 
B)  $5.00. 
C)  $8.00 
D)  $50.00.

Question 5

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Accepted Answer

A)  rise. 
B)  fall. 
C)  be unchanged. 
D)  move in an uncertain direction. 
A)  rise. 
B)  fall. 
C)  be unchanged. 
D)  move in an uncertain direction.

Question 6

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)  the supply of loanable funds does not change;a higher interest rate reduces private saving 
B)  the supply of loanable funds does not change;a higher interest rate raises private saving 
C)  at any interest rate the supply of loanable funds is less;a higher interest rate reduces private saving 
D)  at any interest rate the supply of loanable funds is less;a higher interest rate raises private saving 
A)  the supply of loanable funds does not change;a higher interest rate reduces private saving 
B)  the supply of loanable funds does not change;a higher interest rate raises private saving 
C)  at any interest rate the supply of loanable funds is less;a higher interest rate reduces private saving 
D)  at any interest rate the supply of loanable funds is less;a higher interest rate raises private saving

Question 7

Table 26-1
  
-Refer to Table 26-1.What was Hershey's earnings per share?

Accepted Answer

A)  $38 
B)  $1.64 
C)  $1.31 
D)  $0.61 
A)  $38 
B)  $1.64 
C)  $1.31 
D)  $0.61

Question 8

The sale of stocks

Accepted Answer

A)  and bonds to raise money is called debt finance. 
B)  and bonds to raise money is called equity finance. 
C)  to raise money is called debt finance,while the sale of bonds to raise funds is called equity finance. 
D)  to raise money is called equity finance,while the sale of bonds to raise funds is called debt finance. 
A)  and bonds to raise money is called debt finance. 
B)  and bonds to raise money is called equity finance. 
C)  to raise money is called debt finance,while the sale of bonds to raise funds is called equity finance. 
D)  to raise money is called equity finance,while the sale of bonds to raise funds is called debt finance.

Question 9

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment

Question 10

Which of the following is a financial-market transaction?

Accepted Answer

A)  A saver buys shares in a mutual fund. 
B)  A saver deposits money into a credit union. 
C)  A saver buys a bond a corporation has just issued so it can purchase capital. 
D)  None of the above is correct. 
A)  A saver buys shares in a mutual fund. 
B)  A saver deposits money into a credit union. 
C)  A saver buys a bond a corporation has just issued so it can purchase capital. 
D)  None of the above is correct.

Question 11

If the demand for loanable funds shifts to the right,then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rise. 
B)  and quantity of loanable funds fall. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises. 
A)  and quantity of loanable funds rise. 
B)  and quantity of loanable funds fall. 
C)  rises and the quantity of loanable funds falls. 
D)  falls and the quantity of loanable funds rises.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  A large,well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B)  On average,indexed funds outperform managed funds. 
C)  Unlike corporate bonds and stocks,checking accounts are a store of value. 
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers. 
A)  A large,well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B)  On average,indexed funds outperform managed funds. 
C)  Unlike corporate bonds and stocks,checking accounts are a store of value. 
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers.

Question 13

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 14

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.50 per share and a dividend of $.50.What was its dividend yield?

Accepted Answer

A)  1.25% 
B)  1.67% 
C)  3.33% 
D)  7.50% 
A)  1.25% 
B)  1.67% 
C)  3.33% 
D)  7.50%

Question 15

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

A)  1976 
B)  1948 
C)  1913 
D)  1896. 
A)  1976 
B)  1948 
C)  1913 
D)  1896.

Question 16

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders.This failure is referred to as a

Accepted Answer

A)  breach. 
B)  default. 
C)  risk. 
D)  term failure. 
A)  breach. 
B)  default. 
C)  risk. 
D)  term failure.

Question 17

When a corporation experiences financial problems,bondholders are paid before stockholders.

Accepted Answer

A) True 
 B)False

Question 18

A bond buyer is a

Accepted Answer

A)  saver.Bond buyers must hold their bonds until maturity. 
B)  saver.Bond buyers may sell their bonds prior to maturity. 
C)  borrower.Bond buyers must hold their bonds until maturity. 
D)  borrower.Bond buyers may sell their bonds prior to maturity. 
A)  saver.Bond buyers must hold their bonds until maturity. 
B)  saver.Bond buyers may sell their bonds prior to maturity. 
C)  borrower.Bond buyers must hold their bonds until maturity. 
D)  borrower.Bond buyers may sell their bonds prior to maturity.

Question 19

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 20

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3.Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Accepted Answer

A)  a movement from Point A to Point B 
B)  a movement from Point B to Point A 
C)  a movement from Point A to Point F 
D)  a movement from Point C to Point B 
A)  a movement from Point A to Point B 
B)  a movement from Point B to Point A 
C)  a movement from Point A to Point F 
D)  a movement from Point C to Point B

Exam 26: Saving, investment, and the Financial System

Which of the following statements is not correct?

A low price-earnings ratio indicates that either the stock is

Which of the following is correct?

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 4 percent.The price of a share of this stock is

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Which of the following are effects of an increased budget deficit?

Table 26-1 -Refer to Table 26-1.What was Hershey's earnings per share?

The sale of stocks

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Which of the following is a financial-market transaction?

If the demand for loanable funds shifts to the right,then the equilibrium interest rate

Which of the following statements is correct?

National saving is equal to Y - T - C.

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.50 per share and a dividend of $.50.What was its dividend yield?

The Dow Jones Industrial Average has been computed regularly since

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders.This failure is referred to as a

When a corporation experiences financial problems,bondholders are paid before stockholders.

A bond buyer is a

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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